From Problems to Profits

There's nothing more American than finding opportunity in adversity, and turning lemons into lemonade. This kind of creative thinking often becomes the stuff of legend and can create enormous wealth. But what if you are creating the very problem you are solving?

Two articles in Wednesday's Wall Street Journal offer examples of this phenomenon. The first dealt with recent moves by the nation's big three credit bureaus to further cash in on rapidly rising consumer interest in credit scores and reports. What's driving consumer interest in this information? Identity theft (for which the credit bureaus must assume at least some responsibility), and data processing errors by the credit bureaus that erroneously reduce people's credit scores. In short, the credit bureaus have discovered a lucrative business in letting consumers double-check their work, which is seemingly sloppy enough to warrant hundreds of millions of dollars in report sales annually.

In another article on the same day, it was reported that a growing number of guidance counselors and college test preparation services are recommending that students purchase backup scoring services to verify results of SAT tests run by the College Board. The backup scoring services, which can range from $10 to $100 on top of the $41.50 fee for taking the SAT test, are available from only one source: the College Board.

Why the sudden push to verify test results? A wave of recent bad publicity about scoring errors that wrongly lowered the test scores of thousands of students, admittedly a uncommon occurrence for the College Board. But here, too, the data provider has become, albeit inadvertently, a beneficiary of its errors.

These two examples seem like anomalies in a time when we all agree that the customer rules. What does, in fact, set these entities apart is that the information they generate and report can have a huge impact on our lives. Yet this great power over the lives and livelihoods of individuals must be matched with an equal level of responsibility to do the job properly. Certainly the College Board can be excused for isolated errors. They happen. But in the case of the credit bureaus, telling individuals in effect that data accuracy and quality control is ultimately their responsibility, and then charging them to perform it, sends absolutely the wrong message. And the perverse incentives created when errors and sloppiness can generate large amounts of revenue only works to further erode trust in these organizations.